Canada Household Debt: Majority Frets About What They Owe, But Still Think Others Are The Real Problem

Posted:
03/26/2012 4:32 pm EDT
Updated:
03/27/2012 10:33 am EDT

With policymakers warning about rising household debt levels, a new survey shows that Canadians are both worried about what they owe, and in denial about how their debt compares to those around them. (Alamy photo) | alamy

With policymakers warning about rising household debt levels, a new survey shows that Canadians are both worried about what they owe, and in denial about how their debt compares to those around them.

The seemingly contradictory conclusion was reported on Monday by the Toronto-based online mortgage comparison service RateSupermarket.ca, which polled nearly 3,000 Canadians across the country about their feelings on household debt.

Despite the fact that 60.1 per cent of respondents said they were not comfortable with their current debt levels, the majority -- 50.3 per cent -- also believed their debt levels were below average.

A similar pattern emerged on credit cards.

Plastic was by far the leading cause of debt concern among respondents, at 38.8 per cent, with more than a quarter indicating that they owed more than $5,000 and nearly 10 per cent owing more than $10,000 on their cards.

But only 13 per cent believed their credit card debt was above average. And close to 45 per cent of those who said their credit card debt was on par with most Canadians reported owing more than $5,000.

“People understand it’s a problem, but [think], ‘It can’t be that big of a problem for myself,’” Kelvin Mangaroo, president of RateSupermarket.ca, told The Huffington Post.

As he sees it, this reflects “denial,” and the fact that Canadians have developed only a surface-level awareness about the dangers of carrying hefty debt burdens.

“The first step is always identifying that it’s an issue, so it seems like the majority of people have kind of done that,” he said, adding that the current availability of cheap credit may be preventing Canadians from understanding the implications of falling further into debt.

“People might be taking a shorter-time view than is probably prudent right now,” he said.

When it comes to the type of purchases that are driving Canadians into the hole, Kelvin Mangaroo, President of RateSupermarket.ca, says he was surprised to discover most respondents indicated that everyday expenses are primarily to blame.

“It seems to be smaller items -- going out, eating at restaurants, entertainment -- versus big luxury spending, such as cars and luxury holidays,” he said. “Those little things really add up and then you get into a situation where it might become unmanageable.”

The RateSupermarket.ca study comes on the heels of new Statistics Canada data, which shows that in 2009, at the beginning of the current low interest-rate cycle, the average borrower already owed 114,400 including mortgage debt.

According to Statscan, Albertans were deepest in the hole, owing an average of 157,000, while those in Atlantic Canada carried the lightest debt burden at $69,300.

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Which Parts Of Canada Have The Highest Household Debt?

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Number represents the average among those households that carry debt. Source: Statistics Canada

Number represents the average among those households that carry debt. Source: Statistics Canada

Number represents the average among those households that carry debt. Source: Statistics Canada

Number represents the average among those households that carry debt. Source: Statistics Canada

Number represents the average among those households that carry debt. Source: Statistics Canada

Number represents the average among those households that carry debt. Source: Statistics Canada

THE 10 COUNTRIES DEEPEST IN DEBT

Debt as a percentage of GDP: 80.9 percent
General government debt: $1.99 trillion
GDP per capita (PPP): $35,860
Nominal GDP: $2.46 trillion
Unemployment rate: 8.4 percent
Credit rating: Aaa
Although the UK has one of the largest debt-to-GDP ratios among developed nations, it has managed to keep its economy relatively stable. The UK is not part of the eurozone and has its own independent central bank. The UK's independence has helped protect it from being engulfed in the European debt crisis. Government bond yields have remained low. The country also has retained its Aaa credit rating, reflecting its secure financial standing.
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Debt as a percentage of GDP: 81.8 percent
General government debt: $2.79 trillion
GDP per capita (PPP): $37,591
Nominal GDP: $3.56 trillion
Unemployment rate: 5.5 percent
Credit rating: Aaa
As the largest economy and financial stronghold of the EU, Germany has the most interest in maintaining debt stability for itself and the entire eurozone. In 2010, when Greece was on the verge of defaulting on its debt, the IMF and EU were forced to implement a 45 billion euro bailout package. A good portion of the bill was footed by Germany. The country has a perfect credit rating and an unemployment rate of just 5.5 percent, one of the lowest in Europe. Despite its relatively strong economy, Germany will have one of the largest debt-to-GDP ratios among developed nations of 81.8 percent, according to Moody's projections.
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Debt as a percentage of GDP: 85.4 percent
General government debt: $2.26 trillion
GDP per capita (PPP): $33,820
Nominal GDP: $2.76 trillion
Unemployment rate: 9.9 percent
Credit rating: Aaa
France is the third-biggest economy in the EU, with a GDP of $2.76 trillion, just shy of the UK's $2.46 trillion. In January, after being long-considered one of the more economically stable countries, Standard & Poor's downgraded French sovereign debt from a perfect AAA to AA+. This came at the same time eight other euro nations, including Spain, Portugal and Italy, were also downgraded. S&P's action represented a serious blow to the government, which had been claiming its economy as stable as the UK's. Moody's still rates the country at Aaa, the highest rating, but changed the country's outlook to negative on Monday.
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Debt as a percentage of GDP: 85.5 percent
General government debt: $12.8 trillion
GDP per capita (PPP): $47,184
Nominal GDP: $15.13 trillion
Unemployment rate: 8.3 percent
Credit rating: Aaa
U.S. government debt in 2001 was estimated at 45.6 percent of total GDP. By 2011, after a decade of increased government spending, U.S. debt was 85.5 percent of GDP. In 2001, U.S. government expenditure as a percent of GDP was 33.1 percent. By 2010, is was 39.1 percent. In 2005, U.S. debt was $6.4 trillion. By 2011, U.S. debt has doubled to $12.8 trillion, according to Moody's estimates. While Moody's still rates the U.S. at a perfect Aaa, last August Standard & Poor's downgraded the country from AAA to AA+.
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Debt as a percentage of GDP: 97.2 percent
General government debt: $479 billion
GDP per capita (PPP): $37,448
Nominal GDP: $514 billion
Unemployment rate: 7.2 percent
Credit rating: Aa1
Belgium's public debt-to-GDP ratio peaked in 1993 at about 135 percent, but was subsequently reduced to about 84 percent by 2007. In just four years, the ratio has risen to nearly 95 percent. In December 2011, Moody's downgraded Belgium's local and foreign currency government bonds from Aa1 to Aa3. In its explanation of the downgrade, the rating agency cited "the growing risk to economic growth created by the need for tax hikes or spending cuts." In January of this year, the country was forced to make about $1.3 billion in spending cuts, according to The Financial Times, to avoid failing "to meet new European Union fiscal rules designed to prevent a repeat of the eurozone debt crisis."
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Debt as a percentage of GDP: 101.6 percent
General government debt: $257 billion
GDP per capita (PPP): $25,575
Nominal GDP: $239 billion
Unemployment rate: 13.6 percent
Credit rating: Ba3
Portugal suffered greatly from the global recession -- more than many other countries -- partly because of its low GDP per capita. In 2011, the country received a $104 billion bailout from the EU and the IMF due to its large budget deficit and growing public debt. The Portuguese government now "plans to trim the budget deficit from 9.8 percent of gross domestic product in 2010 to 4.5 percent in 2012 and to the EU ceiling of 3 percent in 2013," according Business Week. The country's debt was downgraded to junk status by Moody's in July 2011 and downgraded again to Ba3 on Monday.
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Debt as a percentage of GDP: 108.1 percent
General government debt: $225 billion
GDP per capita (PPP): $39,727
Nominal GDP: $217 billion
Unemployment rate: 14.5 percent
Credit rating: Ba1
Ireland was once the healthiest economy in the EU. In the early 2000s, it had the lowest unemployment rate of any developed industrial country. During that time, nominal GDP was growing at an average rate of roughly 10 percent each year. However, when the global economic recession hit, Ireland's economy began contracting rapidly. In 2006, the Irish government had a budget surplus of 2.9 percent of GDP. In 2010, it accrued a staggering deficit of 32.4 percent of GDP. Since 2001, Ireland's debt has increased more than 500 percent. Moody's estimates that the country's general government debt was $224 billion, well more than its GDP of $216 billion. Moody's rates Ireland's sovereign debt at Ba1, or junk status.
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Debt as a percentage of GDP: 120.5 percent
General government debt: $2.54 trillion
GDP per capita (PPP): $31,555
Nominal GDP: $2.2 trillion
Unemployment rate: 8.9 percent
Credit rating: A3
Italy's large public debt is made worse by the country's poor economic growth. In 2010, GDP grew at a sluggish 1.3 percent. This was preceded by two years of falling GDP. In December 2011, the Italian government passed an austerity package in order to lower borrowing costs. The Financial Times reports that according to consumer association Federconsumatori, the government's nearly $40 billion package of tax increases and spending cuts will cost the average household about $1,500 each year for the next three years. On Monday, Moody's downgraded Italy's credit rating to A3, from A2.
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Debt as a percentage of GDP: 168.2 percent
General government debt: $489 billion
GDP per capita (PPP): $28,154
Nominal GDP: $303 billion
Unemployment rate: 19.2 percent
Credit rating: Ca
Greece became the poster child of the European financial crisis in 2009 and 2010. After it was bailed out by the rest of the EU and the IMF, it appeared that matters could not get any worse. Instead, Greece's economy has continued to unravel, prompting new austerity measures and talks of an even more serious default crisis. In 2010, Greece's debt as a percent of GDP was 143 percent. Last year, Moody's estimates Greece's debt increased to 163 percent of GDP. Greece would need a second bailout worth 130 billion euro -- the equivalent of roughly $172 billion -- in order to prevent the country from defaulting on its debt in March.
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Debt as a percentage of GDP: 233.1 percent
General government debt: $13.7 trillion
GDP per capita (PPP): $33,994
Nominal GDP: $5.88 trillion
Unemployment rate: 4.6 percent
Credit rating: Aa3
Japan's debt-to-GDP ratio of 233.1 percent is the highest among the world's developed nations by a large margin. Despite the country's massive debt, it has managed to avoid the type of economic distress affecting nations such as Greece and Portugal. This is largely due to Japan's healthy unemployment rate and population of domestic bondholders, who consistently fund Japanese government borrowing. Japanese vice minister Fumihiko Igarashi said in a speech in November 2011 that "95 percent of Japanese government bonds have been financed domestically so far, with only 5 percent held by foreigners." Prime Minister Yoshihiko Noda has proposed the doubling of Japan's 5 percent national sales tax by 2015 to help bring down the nation's debt.
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